Brexit — how will central banks respond? Policymakers’ existing struggle with low productivity and high debt has become more complicated –Financial Times
This article provides us with a useful survey of what central banks are going to be doing to confront the Brexet-initiated downturn.
Start with the Bank of England. Governor Mark Carney acted quickly to provide liquidity by injecting £3.1bn into banks just after Brexit.
Nonetheless, the pound dropped hugely and UK equities plunged too. The next possible step is a rate cut but the falling pound has already initiated price inflation and a rate cut would add inflationary pressures.
Depending on what the numbers show, the BOE could not only cut rates, it could re-initiated quantitative easing.
When it comes to the Fed, the potential hike that Janet Yellen drones on about on a regular basis is probably off the table.
Despite its troubles, the dollar remains the currency of choice as a safe-haven and post-Brexit has risen a good deal.
That means Yellen is under even more pressure not to raise rates, thus strengthening the dollar against other currencies even more.
Over in Europe, ECB head Mario Draghi is sticking to its form of QE and recently he chopped rates.
But the glimmers of what Draghi thought was going to be a recovery seem to have been snuffed for the moment by the stock downturn that took place after Brexit.
Now Draghi may have to cut rates further and expand QE.
Over in Japan, Brexit has shoved capital into the yen, raising its value relative to other currencies. But FT expects that the Bank of Japan could cut rates among other options.
We can see from this abbreviated roundup that central banks are doing what they do best when confronted with a crisis: print more money.
The business cycle has turned away from stocks in any case and Brexit is merely an additional example of that.
Jim Rogers sees the promise in the dollar as a safe haven during these difficult times, and Jim Rogers is one of the world’s most savvy commodity traders.
But you may also wish to consider judicious exposure to gold and silver both in physical and paper form.
Physical metals held safely out of harm’s way, but not in a bank where it would be subject to confiscation, may provide solid solvency in times of great crisis.
But even great crises take time to develop. One way to capitalize on tumultuous times is to gain exposure to selected junior miners.
Of course, you need to be selective and cautious. But if chaos really does mount in Europe and the West, the metals sector will soar and juniors have terrific leverage in such circumstances.
One mining company you may want to examine is a new sponsor of ours, Golden Arrow. The CEO is Joe Grosso. You can see an interview we did with him HERE.
Golden Arrow is partnered with a well-known mining firm Silver Standard in exploiting what could be a major silver discovery.
Miners are likely still cheap, relatively speaking, and silver has a long way to travel to reach parity with its historical ratio.
Conclusion: Whether you are invested in juniors or not, silver should be considered for at least a modest part of your portfolio along with gold.
If you have questions about Golden Arrow, you can reach representative Shawn Perger here: Shawn: 1-800-901-0058 or 778-686-0135. See the website HERE.
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